When the United States and Iran announced an agreement to end the war, oil prices fell to $83 a barrel, after remaining above $90 a barrel since early March.
This is likely to reduce inflationary pressures here in the UK, meaning Bank of England policymakers will be less likely to go ahead with the interest rate hikes that markets have been anticipating.
Sarah Coles, head of personal finance at AJ Bell, explained that if the peace process succeeds, price expectations will change.
“The Bank of England expects that the rise in prices will continue into the autumn,” she said. “However, lower oil prices mean that this may be a relatively short and sharp period of rising prices rather than anything more significant as feared.
“Mid last week, markets were pricing in two interest rate hikes by early 2027.
“The odds have now shifted to just one rate hike by December, so potentially no change for at least the first half of 2027. This is good news for mortgage borrowers, because lower interest rate expectations will mean fewer fixed-rate mortgages.
“Some of the most competitive trades fell last week, and we should see more broadly good news on trades across the market this week.”
Will interest rates rise or stay steady this week?
The Bank of England’s next decision on the direction of interest rates is due on Thursday (June 18). But how will the latest development in the Middle East affect this looming decision?
Most experts and mortgage brokers believe the most likely outcome is to keep the base interest rate at 3.75%.
Susannah Streeter, chief investment strategist at Wealth Club, said: “Concerns about multiple rate hikes this year by the Bank of England look set to subside.
“Many policymakers have indicated that they tend to take a wait-and-see stance, so it is very likely that there will be no change when they meet on Thursday.
“With the UK economy contracting in April and consumers and businesses worried about spending and investment, policymakers will assess the risks of higher inflation against the backdrop of struggling businesses.”
Mortgage deal expiring? What are you doing now
If you were to exit a fixed-rate deal, especially a five-year fix-up insurance when rates were at their lowest, you would likely be bracing for payment shock.
You may be wondering whether you should wait and see whether the peace agreement will lead to lower fixed prices in the future.
Coles’ advice to you, and anyone looking to buy a home, is to take advantage of deals when they appear.
“There is real hope that peace will last, but there are no guarantees, so it is worth securing a better rate while it lasts,” she added.
